how do lenders evaluate if a borrower or cosigner will pay them back?

Lenders evaluate whether a borrower or cosigner will pay them back by assessing three main factors: capacity, collateral, and character. Capacity refers to the borrower's or cosigner's ability to repay the loan based on income, employment, and debt-to-income ratio. Collateral involves any assets or security offered to back the loan, which the lender can claim if repayment fails. Character is evaluated through credit history, credit score, and overall financial behavior showing reliability in repaying debts. For cosigners specifically, lenders look at their credit report for negative marks such as late payments or defaults, their credit utilization ratio, and payment history to gauge financial stability. A strong credit score (typically above 670 or higher) and steady income with a manageable debt-to-income ratio are critical criteria. Cosigners take on legal responsibility to repay if the primary borrower defaults, so lenders thoroughly assess their creditworthiness and financial situation.